At my account we create a network image with all files compressed then set the Cache installation on local machine to on and set the directory to [WindowsFolder]Cache. The setup.exe then extracts it's file to a sub-directory based on the GUID of the installation and runs the install from that location so it's automatically included in the SourceFiles path property. This cached location includes the msi with a compressed files and registry settings streamed within the file.
Hope this helps,
Mike